Commodities Wrap - Oil, Gold, Natgas, Coffee (12.11.2024)

Oil

• Crude oil continues its declines in the face of the continuing so-called “Trump trade,” which may signify the new administration's friendly policies to increase investment in US oil and gas production
• However, some analysts are skeptical that production will continue to increase next year, due to insufficient investment over the past few years. The number of drilling rigs remains low, and the number of uncompleted wells that constitute the supply reserve remains low
• Hurricane Rafael led to a decline in oil production of 0.5 million brk per day. The impact on production will only be short-term
• Oil inventories remain low, while next week's data could theoretically lead to a drop in inventories near the lowest levels in 5 years
• The drop in production and possible problems with oil refining on the coast are leading to a slight recovery in the so-called “crack spread.” This could mean that, at least in the short term, price declines may be limited.
• The spreads of upcoming futures contracts also point to oversold oil, unless the futures curve flattens out and enters contango mode next year. 
• Such a scenario implies a decline even to the $55-60 per barrel zone next year

Oil stocks are currently at 5-year lows for the year, although they are still near year-end lows. Source: Bloomberg Finance LP, XTB

Crack spread has been bouncing since September, which may indicate that a short-term bottom has already been reached in the oil market. Source: Bloomberg FInance LP, XTB

The spreads of the upcoming contracts suggest that oil is already oversold. On the other hand, there may also be a flattening of the curve and the market's entry into contango next year. Source: Bloomberg Finance LP, XTB

Oil is testing a potential neckline. Nevertheless, it seems that in the short term, oil may already be oversold. At the same time, however, if the head-and-shoulders pattern were to be filled, then the breakout target would be around $55 per barrel. Source: xStation5

Gold

• Gold continues the correction started at the end of October, which was strengthened after Donald Trump's win in the US presidential election
• Trump trade means a stronger dollar and higher yields, which could hurt bullion in the short term
• Gold is currently scoring its biggest correction of the year, already reaching approx. USD 200 per ounce. Nevertheless, the zone between 2550 and 2600 is very strong, looking at the abolitions of 38.2 and 50.0 of the upward wave from the second half of the year, the upward trendline drawn after the lows of this year, and the 100-period moving average
• We are also seeing a reduction in the expectation of interest rate cuts in the US. ETFs have also begun to sell off gold. Investors may be directing their funds to Bitcoin, which has risen to new record highs
• Seasonality indicates a sideways trend or correction in November, while December and January are already positive for gold

The 10-year seasonality suggests a fairly significant decline. Long-term seasonality indicates a bottom in the next 2 weeks, while 5-year seasonality indicates a sideways trend and a rebound at the very end of the year. Source: Bloomberg Finance LP, XTB

The biggest correction in the gold market this year is currently underway. Source: xStation5

NATGAS

• The price of gas jumped more than 10% in response to the impact of Hurricane Rafael in the Gulf of Mexico, which reduced production by about 15%. The reaction was large due to the fact that US gas production has been declining for some time and is now below 100 bcfd
• However, it's worth remembering that the Gulf of Mexico is of limited importance for production - it's about 2% of all US production, and the vast majority comes from shale production
• Gas production has fallen below 100 bcfd and is near the 5-year average. At the same time, gas consumption itself is below the 5-year average. 
• The latest inventory gain of 69 bcf was above the 5-year average. Seasonality implies that this week's or next week's data should bring a drop in inventories, marking the actual start of the heating season
• Gas is currently behaving more strongly than seasonality would imply. 
• The 5-year and 10-year seasonality suggest that strong declines should begin over the next few days
• Temperatures in the US in the key heating region, the Midwest, remain above average. However, it can be seen that with the longer-term forecast, a cold front is starting to move from west to east

Lower consumption than normal, but low gas production. Source: Bloomberg Finance LP, XTB

Seasonality 5 and 10 indicates that a correction should occur in the coming days. On the other hand, long-term seasonality implies continued increases through the end of the year. Source: Bloomberg Finance LP, XTB

Gas prices rose very strongly at the beginning of the week, while it is important to remember that the impact on overall production will be temporary. Seasonality indicates that gas prices should return to declines in the second half of the month. Source: xStation5

Coffee

• Coffee prices remain around 260 cents per pound amid uncertainty over the Robusta harvest in Vietnam. Heavy rains in the area are causing problems for coffee transport during harvesting
• For October, Vietnam's coffee exports fell 11.6% y/y, while in January-October exports fell 11.1% y/y
• Coffee stocks have already stopped growing as fast as they did last year. This could mean that coffee supplies remain tight or the quality of the crop is not very high
• It is worth remembering that the USDA expects a fairly large oversupply in the market, although production problems in Brazil and a reduction in expected production in the 24/25 season cannot be ruled out
• Production prospects in Minas Gerais, Brazil may worsen, given persistent dry conditions. 
• CONAB cuts recent coffee production outlook to 54.8 million bags from earlier May forecast of 58.8 million bags
• At the same time, Brazil's coffee exports remain strong, rising 11% y/y for October. For the 23/24 season, exports from Brazil rose 33% y/y

Coffee stocks have stopped growing at the pace of earlier this year, which could mean supply constraints or poorer quality coffee. Source: Bloomberg Finance LP, XTB

Coffee prices have been rebounding in recent days due to poor weather conditions in Vietnam and Brazil. On the other hand, USDA, CONAB or ICO still maintain forecasts of oversupply of coffee for the 24/25 season. Source: xStation5